Identity Crisis in Payment Aggregator Models: Merchant of Record, Payment Facilitator, Marketplace, or Staged Digital Wallet?

7 min

Identity Crisis - The condition of being uncertain of one's feelings about oneself, esp. with regard to character, goals, and origins, occurring esp. in adolescence as a result of growing up under disruptive, fast-changing conditions.

Disruptive, fast-paced changes in the operations and rules applicable to the growing fintech payments sector are causing uncertainty for many companies trying to figure out where they fit in the industry. For startups and services providers, it can be difficult to navigate the different card brand classifications for merchant (of record), payment facilitator, marketplace, and staged digital wallet, as well as the corresponding regulatory and compliance requirements. For acquiring banks and processors, there are challenges in determining how to classify, on-board, and support different types of platform and aggregator customers.

This article lays out the major differences between these categories and several of the primary challenges to pursuing each business model. Ultimately, each company will need to carefully consider its purpose, goals, and resources in deciding which arrangement best serves its business interests.

Merchant of Record

In a card processing transaction, the merchant of record (MOR) is the company that sells the product or service to the buyer. According to Visa's rules, the MOR is the company that (1) represents itself as selling the goods or services to the cardholder; (2) uses its own name to identify itself to the cardholder; and (3) provides recourse to the cardholder in the event of a dispute. A company that submits a transaction for processing and receives settlement that is not a MOR is a payment facilitator or a marketplace. Other factors indicating a company is the MOR include whether the entity takes possession of the goods or services to be sold, books the sale as revenue, or provides customer service and handles returns.

Where a company hosts a platform for facilitating the purchase of goods and services from multiple unrelated sellers, how can it be considered the MOR? In this scenario, the company may purchase and take title to the stock of sellers on the platform prior to the platform company selling it to the buyer. For a platform that provides services, the platform may treat the individual service providers as its employees or independent contractors. When a buyer uses a service through a platform, such as a car ride or repairs, they are contracting with and making payment to the platform company, which has the separate obligation of paying its employees and contractors.

While the MOR model may present fewer issues under payment-related laws, including a low risk of money transmission if structured correctly, other legal and operational challenges exist, including:

  • As the seller, the MOR is responsible to the buyer for many aspects of the transactions, including dispute resolution, return and refund policies, responsibility for defective products, or poor service.
  • Similarly, the MOR may be held liable for the activities of its sellers or service providers, including for misleading product descriptions, fraud, or other damages and injuries.
  • The MOR is responsible for its relationships with the sellers or service providers on the platform, which may include labor and employment–related issues.

Payment Facilitator

A payment facilitator is permitted under the card brand rules to submit the transactions of an identified group of third-party sub-merchants for processing through its own merchant account. In other words, a payment facilitator is not the MOR; each of its sub-merchants is the MOR for its own sales transactions.

Payment facilitators are responsible for underwriting and on-boarding their sub-merchants and for monitoring their activities for compliance with card brand rules and applicable laws. Depending on the structure of its relationship with its processor or acquirer, a payment facilitator may be responsible for receiving settlement funds and distributing them to its sub-merchants, a process that raises money transmission considerations.

Unlike the other aggregator categories, a payment facilitator is more like a traditional payment processor in that its activities are not cardholder-facing. A payment facilitator is responsible for its sub-merchants' compliance, but does not set the terms and conditions of its sub-merchants' sales transactions, and is not directly responsible to the cardholders for returns, refunds, dispute resolution, or the delivery of goods and services.

Major challenges for a payment facilitator include:

  • Underwriting sub-merchants and liability to its processor or acquirer for sub-merchant chargebacks and other losses.
  • Developing a settlement and reconciliation engine and, if receiving settlement proceeds for distribution, resolving money transmission compliance issues.
  • Navigating requirements for sub-merchants to form direct agreements with the acquiring bank, including once the sub-merchant reaches $1 million in annual volume for either Visa or MasterCard.


Visa recently defined a "marketplace" to mean a company that (1) provides an electronic commerce website or app to bring buyers and sellers (called "retailers") together; and (2) manages payments on behalf of the retailers on the marketplace by processing them through its own merchant account. The other card brands are likely to publish their own rules defining a "marketplace," but currently a marketplace for Visa purposes may still be treated as a payment facilitator under other the card brands' rules.

Under the Visa Rules, a marketplace is similar to a payment facilitator, but may only process the transactions of the retailers on its platform. In addition, whereas payment facilitators have the flexibility of having their processors settle directly to sub-merchants, the Visa Rules require a marketplace to receive and distribute settlement funds to the retailers on its platform. Visa also places limits on the size of the retailers on a marketplace's platform and imposes certain customer service and dispute resolution obligations on marketplaces.

Some of the challenges of being a marketplace include:

  • Resolving money transmission compliance issues, given that a marketplace is required to receive and distribute settlement funds to its platform retailers.
  • Managing the maximum platform retailer size of $10 million in annual Visa volume through the marketplace or 10% of the marketplace's annual Visa volume. In addition, because MasterCard does not currently have a separate category for "marketplaces," such a company would presumably still be treated as a payment facilitator for MasterCard purposes. Thus, a platform retailer would need to form a direct agreement with the marketplace's acquiring bank when it reaches an annual MasterCard volume of $1 million.
  • Providing a binding dispute resolution process between retailers and cardholders or offering a marketplace-funded money-back guarantee to cardholders.

Staged-Digital Wallet Operator (SDWO)

A SDWO is company that provides digital wallet services involving (1) a funding transaction paid by debit or credit card to the SDWO and processed through its merchant account; and (2) a separate payment transaction from the SDWO to the merchant from which the cardholder wants to make a purchase that does not involve the use of the card. Although the merchant receives payment in the second step, it may not receive any information about the buyer's credit or debit card. Rather, the merchant is paid either through a funds transfer from the SDWO to its bank account or through a proprietary stored value system from which the merchant may withdraw funds to its bank account.

Like a payment facilitator or a marketplace, an SDWO must be specifically registered with the card brands and is subject to their rules as both a merchant and a third-party agent / service provider. Because a SDWO provides both fund transfers and stored value services, it is the aggregator type most likely to have significant money transmission licensing and compliance problems.

However, unlike a payment facilitator or marketplace, each of which must distribute settlement funds "promptly" after receiving them, an SDWO may permit cardholders to load funds to their wallets in advance of future transactions. Subject to requirements under applicable law, an SDWO may invest the "float" or otherwise make use of those funds prior to transmitting them. Finally, the SDWO model is the only one that provides for consumer-to-consumer transactions through the use of a credit or debit card.

  • A SDWO runs a high risk of being a money transmitter under federal and state laws, which require a compliant anti-money laundering program and as many as fifty state licenses
  • Unlike a payment facilitator or marketplace, which still provide for otherwise standard credit card acceptance, merchants may be reluctant to accept payment through the method made available by the SDWO
  • As a consumer-facing entity, the SDWO is responsible for setting the terms and conditions of its service, resolving disputes, and safeguarding consumer funds and personal information

A Cheat Sheet for Distinguishing Aggregator Models

Here is a chart that summarizes the major differences between Merchants of Record, Payment Facilitators, Marketplaces, Staged Digital Wallet Operators, and the operational and compliance difficulties involved in pursuing each aggregator model.

If you have questions or would like additional information, please reach out to any of the authors.